Is the American dream really a nightmare?

South Florida residents Angie and Robert Felton have stable jobs, reliable incomes and savings, but they still can’t qualify for a home mortgage. Why? Our feature story about the lack of lending to minorities in the region, and what is being done about it, will help provide perspective on the issues involved and how they are being addressed.

Home lending rebound leaves blacks behind

Robert and Angie Felton thought getting a mortgage for a new home would be a piece of cake. The monthly mortgage payment on the Federal Housing Administration loan they sought for an $115,000 home in Sunrise would be considerably less than the $1,600 in rent they pay for a Miramar apartment, plus they made a combined $95,000 a year.

Yet, SunTrust Bank rejected the couple – an occurrence that’s more common in South Florida for blacks than for other racial groups. The denial came after an exhaustive four-month underwriting ordeal, during which the couple submitted every shred of their financial information. In the end, the Feltons were told they weren’t worthy of a mortgage because Robert could lose his job. He’s been a truck driver for 15 years, the last two at a jet fuel transport company.

“We were completely baffled,” Angie Felton said. “Anybody could lose their job at any moment. … Even after they gave us that bogus excuse, we never got a denial letter. We just never heard back from anybody. It’s almost as if we didn’t exist.”

What particularly frustrated Robert Felton is that he and his wife put off extending the lease on their apartment during the loan process, and they were forced to move out in favor of a new tenant.

“The moving truck was coming that morning and we had to sign a lease at another place,” he said.

SunTrust declined comment.

While a previous Business Journal story showed home lending volume finally rebounded in 2011– a 2.2 percent increase in loans granted and a 3.2 percent rise in dollars loaned out in South Florida – the black community was left behind. Only 7.5 percent of local home loans in South Florida were granted to blacks in 2011 – the lowest percentage since the Compliance Technologies’ Lending Patterns database of Home Mortgage Disclosure Act (HMDA) filings started measuring it in 2004. With just 4.8 cents of every loan dollar going to black borrowers in 2011, that also marked a new low.

Given that blacks account for 21 percent of South Florida’s population, they’re getting a disproportionately small slice of the pie from banks.

Home loans granted to white, non-Hispanics and Hispanics increased in South Florida in 2011, but lending declined 6.6 percent for blacks, who have yet to see a rebound from the recessionary plummet that started in 2006.

“We should all tell banks that you’ve got to do better,” said Bill Diggs, president and CEO of the Miami-Dade Chamber of Commerce, which represents mostly African-American businesses. “If you don’t do business with us, we won’t do business with you and we will move our accounts.”

There’s no simple explanation for this scant lending. One thing that’s been consistent through the years is that, as the Feltons discovered, black borrowers have a harder time getting through the application process.

In 2011, blacks’ home loan applicants in South Florida were rejected 27 percent of the time, compared with 20 percent for non-Hispanic whites and 23 percent for Hispanics. The loan origination rate for blacks was 38 percent – considerably less than the 52 percent origination rate for non-Hispanic whites and 44 percent for Hispanics. Those numbers don’t add up to 100 percent because some applications fall out before lenders make a decision.

It’s a reasonable argument that borrower income played a major factor in the more frequent rejections. Only 26 percent of black loan recipients in South Florida were upper income, compared with 59 percent of non-Hispanic whites and 49 percent of Hispanics. Loans to upper-income (over $61,695) borrowers, especially jumbo loans, accounted for the most growth in 2011.

Yet, disparities existed even for upper-income blacks. Upper-income, non-Hispanic whites applying for loans in South Florida in 2011 had a 53 percent origination rate, compared with 48 percent for upper-income Hispanics and 39 percent for upper-income blacks. The loan denial rates for those groups were 20 percent, 18 percent and 25 percent, respectively. That means factors besides income levels were at play.

Hurt harder by recession

The unemployment rate for blacks remains higher than for most groups and peaked at 16.7 percent during the recession. Given that the mortgage industry has raised its credit score requirements, this has made things tougher for many blacks, even after they find jobs, said Julius Cartwright, president of the National Association of Real Estate Brokers, which represents African-American professionals.

“A vast majority of people not making money aren’t paying their bills,” he said. “They had credit challenges before they landed a job, and they may have depleted their savings.”

Cartwright is encouraging more financial education programs in the black community so people can learn how to boost their credit scores. Many who know they don’t meet bank’s requirements don’t bother applying. Home loan applications by blacks in South Florida fell 11.8 percent in 2011, compared with an overall decline of 2.1 percent.

If you take all minority applications approved for an FHA loan in 2004 and run them under today’s standards, 37 percent would get rejected, said Cicero Wilson, an analyst with Columbus, Ohio-based SRP Development. That’s mostly because of higher credit score requirements.

Less family equity

Banks also raised the equity requirements for borrowers. While black borrowers in South Florida are more likely to utilize the FHA program, with as little as 3 percent down, the program has stringent underwriting requirements, and borrowers must make mortgage insurance payments and might still need to come up with the money to make up the difference of an unfavorable appraisal.

The average black family that doesn’t own a home has a net worth between $1,000 and $1,700, Cartwright said. The average net worth for black homeowners is $49,000 to $57,000. Those are the lowest of any racial group.

The lack of wealth for most blacks is a carryover from slavery and redlining their neighborhoods in the past, as families don’t have money to pass on to their children, said former state Rep. Willie Logan, president of the Opa-Locka Community Development Corp. They often can’t depend on their relatives for a down payment.

“We couldn’t benefit from properties increasing in value,” Logan said. “My mother’s house is 2,100 square feet with central air and wood floors, but because it’s in Miami Gardens, it’s valued at 25 percent less than what a home in Kendall would be.”

Hard-hit neighborhoods

Both black and Hispanic loan applicants in South Florida tend to seek loans in areas with high concentrations of minorities. Nearly half of blacks applied for loans in neighborhoods populated by more than 70 percent minorities. By contrast, three-quarters of whites obtained loans in neighborhoods with less than 40 percent minorities.

The foreclosure rate for both blacks and Hispanics in South Florida is considerably higher than the national average, which is partially a consequence of banks targeting them with subprime loans during the housing boom. Wells Fargo Bank, Bank of America/Countrywide and SunTrust are among the institutions that paid millions of dollars in fines to settle federal allegations of discriminating against minorities by offering them subprime loans when they could have qualified for less risky and less expensive mortgages.

Even in 2011, black borrowers in South Florida were more likely to get loans with high interest rates/subprime features than white, non-Hispanic borrowers – and the same could be said when comparing the upper-income segments.

Logan said many foreclosures in urban areas were on investor-owned properties.

“They had no intention on renovating the houses,” he said. “The investor, who isn’t a low income person or a minority, walks away making money with no debt. It seems to be unfair.”

The higher foreclosure rates have been a drag on many minority neighborhoods, some which are dotted with abandoned and blighted homes. Many condominium complexes with a high foreclosure rate aren’t eligible for Fannie Mae or Freddie Mac mortgages. This limits lending options and hurts appraisals. Logan said few homeowners in urban areas have been able to take advantage of record-low interest rates through refinancing.

HMDA data shows that most black borrowers in South Florida obtained loans for home purchases in 2011, while most white, non-Hispanics borrowers refinanced.

By refinancing, families can reduce expenses and build equity for a larger home – another example of how many local black families are falling behind due to lack of opportunity.

Diggs said homeownership decreases blight, leading to welcoming neighborhoods, but that’s not happening in black communities because banks are not lending there.

If Angie Felton can’t find a nice home in South Florida, she has another option: “We can move to Atlanta and get a house for $120,000 that’s 2,500 square feet, versus staying here and buying a shack in the hood.”